Enstar offers to acquire Watford Re

Bermuda domiciled re/insurance, run-off and legacy specialist underwriter and investor Enstar Group has made a formal approach to the board of Watford Re’s holding company to acquire the total return focused reinsurance firm.

According to a filing, Enstar has offered to acquire all of the ordinary shares of Watford Holdings Ltd., the parent company to the Arch Capital and Highbridge Principal Strategies backed investment oriented or total-return style reinsurance firm Watford Re, for $31.00 per share.

The move comes after Enstar has been building up holdings in Watford Re, having taken around 5% of its shares in Q1 2020 and then almost doubled that to over 9% in Q3.

Meanwhile, Arch Capital Group, which was a founding partner in the launch of Watford Re and its largest shareholder, also providing underwriting management services to the total-return reinsurer, had reportedly offered $26.00 per share to buy-out the rest of Watford Re’s share capital recently.

So the offer from Enstar is certainly higher and it will be interesting to see how it is responded to.

Enstar’s letter said that it has built up its shareholding in Watford to 9.1% as, “the current share price undervalues the true economic value of Watford.”

It continues, “We understand that the Board of Directors of Watford have hired Morgan Stanley to help evaluate strategic options for the Company. We would be pleased to engage with Watford and its Board to help provide a solution and are pleased to provide you with our non-binding indicative proposal (“Proposal”) for the acquisition of 100% of the ordinary share capital of Watford.”

Enstar has offered to pay $31.00 per ordinary share, a premium to current market price of 365.1%, in cash.

The company said the purchase price is based “on the assumption that the key contracts with Arch Capital Group and HPS Investment Partners would remain in place.”

But Enstar also said it would be “willing to discuss the early termination of those agreements if that would be preferable to such parties.”

Watford Holdings IPO’d in 2019 and that was at a discount to book value. Its shares have consistently traded below expected levels and this has put it into the frame for potential acquisitions.

Enstar has itself got experience in the total-return, or investment oriented reinsurance space, having launched its own KaylaRe venture alongside investors in the past.